Read the scenario below, and address the subsequent requirements.

Emma is the plant manager of an electronics company. Plant managers are paid a salary and get an additional bonus equal to 5% of their base salary if their division meets or exceeds target profits for the year. The bonus is determined after the company’s annual financial report has been prepared and issued to shareholders.

Emma’s division uses a process costing system where the estimate of the percentage completion of ending work in process inventories affects the unit costs of finished goods and therefore the cost of goods sold. (All units completed and transferred out of the final processing department were sold.)

Emma just received preliminary profit figures for her division which show it is within $200,000 of making the year’s target profits. To earn her bonus, Emma simply needs to convince James, her lead production supervisor, to increase the estimate of the percentage complete of ending work in process inventory. James has already submitted the percentage completion figures to corporate headquarters.

In your post, address the following questions:

1. What are the ethical issues in this process costing environment? What are the risks?

2. Do you think Joe should go along with Emma's request to alter estimates of the percentage completion? Why or why not?

In conducting interviews and observing factory operations to implement an activity-based costing system, you determine that several activities are unnecessary or redundant. For example, warehouse personnel were inspecting purchased components as they were received at the loading dock. Later that day, the components were inspected again on the shop floor before being installed in the final product. Both of these activities caused costs to be incurred but were not adding value to the product. If you include this observation in your report, one or more employees who perform inspections will likely lose their jobs.

Questions

1. As a plant employee, what is your responsibility to report your findings to superiors?
2. Should you attempt to determine if the redundancy is justified? Explain.
3. What is your responsibility to the employees whose jobs will likely be lost by your report?
4. What facts should you consider before making your decision to report or not?

[The following information applies to the questions displayed below.]

Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below:

Beech’s managers have made the following additional assumptions and estimates:

1. Estimated sales for July, August, September, and October will be $220,000, $240,000, $230,000, and $250,000, respectively.

2. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 35% in the month of sale and 65% in the month following the sale. All of the accounts receivable at June 30 will be collected in July.

3. Each month’s ending inventory must equal 25% of the cost of next month’s sales. The cost of goods sold is 75% of sales. The company pays for 40% of its merchandise purchases in the month of the purchase and the remaining 60% in the month following the purchase. All of the accounts payable at June 30 will be paid in July.

4. Monthly selling and administrative expenses are always $40,000. Each month $6,000 of this total amount is depreciation expense and the remaining $34,000 relates to expenses that are paid in the month they are incurred.

5. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30.

Required:

1. Prepare a schedule of expected cash collections for July, August, and September.

2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30.

2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September.

3. Prepare an income statement for the quarter ended September 30.

4. Prepare a balance sheet as of September 30.

[The following information applies to the questions displayed below.] Beech Corporation is a merchandising company that is preparing a master budget for the third quarter of the calendar year. The company’s balance sheet as of June 30th is shown below: Beech Corporation Balance Sheet June 30 Assets Cash $ 80,000 Accounts receivable 135,000 Inventory 41,250 Plant and equipment, net of depreciation 211,000 Total assets $ 467,250 Liabilities and Stockholders’ Equity Accounts payable $ 72,000 Common stock 345,000 Retained earnings 50,250 Total liabilities and stockholders’ equity $ 467,250 Beech’s managers have made the following additional assumptions and estimates: Estimated sales for July, August, September, and October will be $220,000, $240,000, $230,000, and $250,000, respectively. All sales are on credit and all credit sales are collected. Each month’s credit sales are collected 45% in the month of sale and 55% in the month following the sale. All of the accounts receivable at June 30 will be collected in July. Each month’s ending inventory must equal 15% of the cost of next month’s sales. The cost of goods sold is 70% of sales. The company pays for 30% of its merchandise purchases in the month of the purchase and the remaining 70% in the month following the purchase. All of the accounts payable at June 30 will be paid in July. Monthly selling and administrative expenses are always $40,000. Each month $6,000 of this total amount is depreciation expense and the remaining $34,000 relates to expenses that are paid in the month they are incurred. The company does not plan to borrow money or pay or declare dividends during the quarter ended September 30. The company does not plan to issue any common stock or repurchase its own stock during the quarter ended September 30. Required: 1. Prepare a schedule of expected cash collections for July, August, and September. Also compute total cash collections for the quarter ended September 30. 2-a. Prepare a merchandise purchases budget for July, August, and September. Also compute total merchandise purchases for the quarter ended September 30. 2-b. Prepare a schedule of expected cash disbursements for merchandise purchases for July, August, and September. Also compute total cash disbursements for merchandise purchases for the quarter ended September 30. 3. Prepare an income statement for the quarter ended September 30. 4. Prepare a balance sheet as of September 30.

Define coupon and market/effective interest rates as they determine bond pricing at par, premium, or discount values.

1. Determine the proper tax year for gross income inclusion in each of the following cases

1. A cash basis landlord makes new tenants pay first and last month’s rent at the start of the lease.  How does the landlord report these items?

2. Purple Corporation, an exterminating company, is a calendar year taxpayer.  It contracts to provide service to homeowners once a month under a one- two- or three-year contact.  For financial reporting purposes, Purple reports the income ratably over the months of the contract. On April 1 of the current year, the company sold a customer a one-year contract for $120.  How much of the $120 is taxable in current and subsequent year if the company is an accrual basis taxpayer? If the $120 is payment on a two-year contract, how much is taxed in the year of the contract is sold and in the following years?  If the $120 is payment on a three-year contract, how much is taxed in the year the contract is sold and in the following years? (10 points)

Double

Corporation produces baseball bats for kids that it sells for

$33

each. At​ capacity, the company can produce

50,000

bats a year. The costs of producing and selling

50,000

bats are as​ follows:

1.

Suppose

Double

is currently producing and selling

40,000

bats. At this level of production and​ sales, its fixed costs are the same as given in the preceding table.

Gehrig

Corporation wants to place a​ one-time special order for

10,000

bats at

$21

each.

Double

will incur no variable selling costs for this special order. Should

Double

accept this​ one-time special​ order? Show your calculations.

2.

Now suppose

Double

is currently producing and selling

50,000

bats. If

Double

accepts

Gehrig​'s

offer it will have to sell

10,000

fewer bats to its regular customers.​ (a) On financial considerations​ alone, should

Double

accept this​ one-time special​ order? Show your calculations.​ (b) On financial considerations​ alone, at what price would

Double

be indifferent between accepting the special order and continuing to sell to its regular customers at

$33

per​ bat? (c) What other factors should

Double

consider in deciding whether to accept the​ one-time special​ order?

Cordova manufactures three types of stained glass window, cleverly named Products A, B, and C. Information about these products follows: Product A Product B Product C Sales price $ 46.00 $ 56.00 $ 86.00 Variable costs per unit 22.00 12.25 38.00 Fixed costs per unit 8.00 8.00 8.00 Required number of labor hours 1.50 2.50 4.00 Cordova currently is limited to 50,000 labor hours per month. Cordova’s marketing department has determined the following demand for its products: Product A 13,000 units Product B 9,000 units Product C 5,000 units Given the company’s limited resource and expected demand, compute how many units of each product Cordova should produce to maximize its profit.

RayLok Incorporated has invented a secret process to improve light intensity and, as a result, manufactures a variety of products related to this process. Each product is independent of the others and is treated as a separate profit/loss division. Product (division) managers have a great deal of freedom to manage their divisions as they think best. Failure to produce target divisional income is dealt with severely; however, rewards for exceeding one’s profit objective are, as one division manager described them, lavish.

The DimLok Division sells an add-on automotive accessory that automatically dims a vehicle’s headlights by sensing a certain intensity of light coming from a specific direction. DimLok has had a new manager in each of the 3 previous years because each manager failed to reach RayLok’s target profit level. Donna Barnes has just been promoted to manager and is studying ways to meet the current target profit for DimLok.

DimLok’s two profit targets for the coming year are $910,000 (25% return on the investment in the annual fixed costs of the division) and $30 (pre-tax) profit for each DimLok unit sold. Other constraints on the division’s operations are as follows:

• Production cannot exceed sales because RayLok’s corporate advertising program stresses completely new product models each year, although the models might have only cosmetic changes.
• DimLok’s selling price cannot vary above the current selling price of $200 per unit but may vary as much as 5% below $200.
• A division manager can elect to expand fixed production or selling facilities; however, the target profit objective related to fixed costs is increased by 25% of the cost of any such expansion. Furthermore, a manager cannot expand fixed facilities by more than 35% of existing fixed cost levels without approval from the board of directors.

Donna is now examining data gathered by her staff to determine whether DimLok can achieve its target profits of $910,000 and $30 per unit. A summary of these reports shows the following:

• Last year’s sales were 41,000 units at $200 per unit.
• DimLok’s current manufacturing facility capacity is 51,000 units per year, but can be increased to 102,000 units per year with an increase of $1,110,000 in annual fixed costs.
• Present variable costs amount to $120 per unit, but DimLok’s vendors are willing to offer direct materials discounts amounting to $30 per unit, beginning with unit number 71,001.
• Sales can be increased up to 122,000 units per year by committing large blocks of product to institutional buyers at a discounted unit price of $170. However, this discount applies only to sales in excess of 51,000 units per year.

Donna believes that these projections are reliable and is now trying to determine what DimLok must do to meet the profit objectives assigned by RayLok’s board of directors.

Required:

1. Determine the dollar amount of DimLok’s present annual fixed costs per year.

2. Determine the number of units that DimLok must sell to achieve both profit objectives. Be sure to consider all constraints in determining your answer.

3. Without regard to your answer in requirement 2, assume that Donna decides to sell 51,000 units at $200 per unit and 79,750 units at $170 per unit.

(a) Prepare a budgeted income statement (contribution format) for DimLok showing budgeted operating income.

(b) Would this projected operating income meet the stated profit objectives?

Of all the times this hard drive could crash, it had to be now, ” Marcy cried. “How can I finish the June financial reports without all the information? I knew I should have backed up the disk last night before I left work.” News of the disaster traveled quickly through the office, and people began to stop by her cubicle to offer their help.

     John was the first to the rescue. “It might not be as bad as you think, Marcy. I have the financial reports from May right here. According to the balance sheet, we had a total inventory of $99,000 at the end of May. And I remember that the Finished Goods Inventory was one-third of that amount.”

     “I just finished the inventory counts last night,” Peter chimed in from across the hall. “According to my tally sheets, we finished June with $80,000 in Direct Materials Inventory, $52,000 in Work in Process Inventory, and $25,000 in Finished Goods Inventory. This was a 100% increase from the balances in Direct Materials Inventory and Work in Process Inventory at the end of May. I bet with a little more investigative work, we can get all the numbers you need to complete the reports.”

     Sally called from Payroll to tell Marcy that the company had paid a total of $36,000 for direct labor during June. Juan, the billing supervisor, e-mailed Marcy that the company had sent out invoices to customers totaling $291,000.

     Marcy knew that the overhead rate was 200% of direct labor costs. She also knew that the company priced its product using a 50% markup on the cost of goods sold. Armed with all this information, she sat down to reconstruct the inventory accounts for June.

1. Begininng finished goods:

2. Beginning direct materials:

3. Beginning work in process:

4. Cost of goods sold:

5. Cost of goods manufactured

6. Direct material used:

7. Purchases:

8. Direct labor:

9. overhead:

In 2017, your client, Clear Corporation, changed from the cash to the accrual method of accounting for its radio station. The company had a positive § 481 adjustment of $2.4 million as a result of the change and began amortizing the adjustment in 2017. In 2018, Clear received an offer to sell the assets of the radio station business (this would be considered a sale of a trade or business under §1060). If the offer is accepted, Clear plans to purchase a satellite television business. Clear has asked you to explain the consequences of the sale of the radio station on the amortization of the §481 adjustment.

Before her death, Lucy entered into the following transactions. Discuss the estate and income tax ramifications of each of these transactions.

A. Lucy borrowed $600,000 from her brother, Irwin, so that Lucy could start a business. The loan was on open account, and no interest or due date was provided for. Under applicable state law, collection on the loan was barred by the statute of limitations before Lucy died. Because the family thought that Irwin should recover his funds, the executor of the estate paid him $600,000.

B. Lucy promised her sister, Ida, a bequest of $500,000 if Ida would move in with her and care for her during an illness (which eventually proved to be terminal). Lucy never kept her promise, as her will was silent on any bequest to Ida. After Lucy’s death, Ida sued the estate and eventually recovered $600,000 for breach of contract.

C. Before her death, Lucy incurred and paid certain medical expenses but did not have the opportunity to file a claim for recovery from her insurance company. After her death, the claim was filed by Lucy’s executor, and the reimbursement was paid to the estate.

3. A partially completed pension spreadsheet showing the relationships among the elements that constitute Carney, Inc.’s defined benefit pension plan follows. At the end of 2018, Carney revised its pension formula and incurred a prior service cost of $100 million. At the end of 2019, the pension formula was amended again, creating an additional prior service cost of $200 million. At the beginning of 2020, $400 million prior service cost was incurred. At the beginning of 2021, $300 million prior service cost was incurred. In 2018 - 2021, the actuary’s discount rate remained 10%, and the average remaining service life of the active employee group remained 10 years. The expected rate of return on assets was 10% in 2019, and increased by 1% each year.

1. Fill in blanks in the 2021 pension spreadsheet.

2020 Spreadsheet

1. Company A is operating at full capacity, sold 45,600 units during the current year. Its income statement is as follows:

The division of costs between variable and fixed is as follows: (round to nearest dollar)

Management is planning to increase the unit sales price by $3 each, no change to the variable cost, but adding additional fixed cost of $25,000.

1. a. Determine the total variable costs and b. the total fixed costs for the current year.
2. a. Compute the break-even sales units and b. dollar sales for the current year. (round to nearest unit/dollar)
3. a. Compute the break-even sales units and b. dollar sales under the proposed program for the following year. (round to nearest unit/dollar)
4. How many units would have to be sold, under the proposed program, to generate income from operations of $965,500 (round to nearest unit).